NAGANO KEIKI CO.,LTD. FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥32.40B
• Operating Income: ¥3.25B
• Net Income: ¥2.92B
• EPS: ¥117.39

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Nagano Keiki (TSE:7715) reported FY2026 Q2 consolidated results under JGAAP showing a soft top line and compressed profitability versus the prior-year period. Revenue was ¥32.4bn, down 9.1% YoY, reflecting demand normalization and/or weaker volumes in key end-markets. Gross profit of ¥11.51bn implies a gross margin of 35.5%, which remains healthy but likely pressured by mix and fixed-cost under-absorption on lower sales. Operating income declined 18.6% YoY to ¥3.25bn, placing the operating margin at roughly 10.0%, a step down consistent with negative operating leverage. Ordinary income of ¥3.17bn was slightly below operating income, indicating modest non-operating net expense (interest and other items). Net income fell 24.3% YoY to ¥2.24bn, compressing the net margin to 6.92% and pulling ROE to 4.74% on the DuPont basis provided. Asset turnover of 0.428 and financial leverage of 1.60 frame the ROE profile as primarily constrained by lower margins this period rather than balance sheet structure. Liquidity remains strong with a current ratio of 216% and a quick ratio of 129%, supported by sizable inventories (¥17.6bn) and overall working capital. The company generated operating cash flow of ¥1.76bn in the period, representing an OCF-to-net income ratio of 0.78, indicating some working capital drag amid softer sales. Financing cash flow was an outflow of ¥1.08bn, likely debt service and/or dividends/treasury activities (specifics not disclosed). Investing cash flow, cash balance, equity ratio, DPS, and share counts are not disclosed in the dataset (zeros signify unreported), limiting precision on FCF and capital return analysis. Despite these data gaps, the balance sheet appears conservatively leveraged with total liabilities at ¥29.75bn versus equity of ¥47.30bn (D/E 0.63x). EBITDA of ¥4.23bn yields a 13.1% margin and interest coverage of 11x, underscoring ample debt service capacity. The effective tax rate reported as 0.0% is inconsistent with the disclosed tax expense; using ordinary income as a rough proxy for pre-tax, the implied tax rate is in the low-40% range. Near-term outlook hinges on order trends in industrial and automotive end-markets, normalization of inventories, and cost pass-through. Overall, the company remains financially solid, but margin resilience and cash conversion warrant close monitoring given the YoY slowdowns.

Profitability Analysis

ROE of 4.74% decomposes into a 6.92% net margin, 0.428x asset turnover, and 1.60x leverage, highlighting margin pressure as the main drag. Operating margin is about 10.0% (¥3.25bn OI on ¥32.40bn sales), down YoY in line with the 18.6% OI decline versus a 9.1% revenue decline, evidencing negative operating leverage. Gross margin at 35.5% remains solid for precision instruments but likely faced volume deleverage and less favorable mix. EBITDA margin of 13.1% suggests moderate operating efficiency and adequate absorption of fixed costs despite lower volumes. Ordinary income trails operating income by ~¥82m, reflecting net non-operating expenses, primarily interest (¥295m), modest relative to EBITDA. Interest coverage of 11.0x indicates comfortable financing cost burden. Overall, profitability compression is driven by the top-line decline and resulting deleverage rather than structural cost escalation.

Growth Assessment

Revenue contracted 9.1% YoY to ¥32.4bn, indicating cyclical softness or customer inventory correction in core markets. Operating income fell 18.6% YoY, a steeper decline than sales, consistent with semi-fixed cost structures in manufacturing. Net income decreased 24.3% YoY, magnified by lower operating profit and non-operating costs. The net margin of 6.92% remains respectable but below prior-year levels, signaling reduced pricing power and/or weaker utilization. Given the inventory build implied by OCF/NI of 0.78 and inventories at ¥17.6bn, normalization of channel and finished goods inventory is a key determinant of near-term growth recovery. With asset turnover at 0.428x, growth will benefit from better asset utilization if demand stabilizes. Outlook drivers include industrial capex trends, automotive production schedules, and FX cost tailwinds/headwinds; disclosure on backlog or orders would sharpen visibility (not provided). Sustainability of revenue will hinge on recovery in late-cycle demand and the company’s ability to pass through costs and protect mix.

Financial Health

Liquidity is strong: current ratio 215.7% and quick ratio 128.9% reflect ample short-term buffers, though inventories comprise a sizable 40% of current assets. Working capital stands at ¥23.49bn, providing operational flexibility. Solvency appears robust with total liabilities of ¥29.75bn against equity of ¥47.30bn (D/E 0.63x), suggesting conservative leverage. Interest coverage of 11.0x shows significant debt service headroom. Total assets are ¥75.67bn; asset efficiency (turnover 0.428x) is subdued due to the sales decline, but manageable. The equity ratio is unreported in the dataset; based on liabilities and equity provided, equity to assets approximates 62.5%, implying a strong capital base. Overall financial health is solid, tempered by inventory intensity that should be monitored.

Cash Flow Quality

Operating cash flow of ¥1.76bn represents 0.78x of net income, indicating earnings conversion was constrained by working capital movements (likely higher inventories and/or receivables relative to payables). Depreciation and amortization of ¥0.98bn supports EBITDA-to-OCF conversion but capex data are unreported (investing CF shown as 0), preventing a reliable free cash flow estimate. Using reported figures only, FCF cannot be determined; the presented 'Free Cash Flow: 0' should be treated as undisclosed rather than zero. Financing CF was an outflow of ¥1.08bn, consistent with debt repayment, dividends, or share repurchases; specific uses not disclosed. The positive OCF amid earnings pressure is a modest positive, but sustainability depends on normalizing inventories and stable receivables collections. Cash and equivalents are not disclosed in the dataset; liquidity must be inferred from working capital ratios.

Dividend Sustainability

Dividend per share and payout ratio are unreported (zeros indicate nondisclosure). Without DPS and capex/cash balances, a full dividend capacity assessment is not possible. From a capacity standpoint, interim OCF of ¥1.76bn and strong liquidity suggest room for ordinary distributions if policy targets stable or progressive payouts, but this is contingent on capex needs and working capital normalization. Coverage relative to earnings would depend on the actual payout; with EPS ¥117.39 for the period, even a modest interim payout would likely be serviceable given the 11x interest coverage and low leverage. Absent disclosure of dividend policy for FY2026, we assume a conservative stance until capex and cash details are available.

Risk Assessment

Business Risks:

• End-market cyclicality in industrial and automotive demand influencing volumes and mix
• Inventory normalization risk leading to near-term production and shipment volatility
• Pricing pressure and cost pass-through challenges affecting gross margin
• FX fluctuations impacting material costs and overseas profitability
• Supply chain constraints or lead-time variability affecting deliveries
• Concentration in pressure instrumentation and sensors with competitive dynamics

Financial Risks:

• Working capital intensity (inventories ¥17.6bn) weighing on cash conversion
• Potential increase in interest costs if rates rise, though coverage is currently strong
• Capex visibility is limited (investing CF unreported), creating uncertainty on future FCF
• Limited disclosure on cash balances reduces clarity on immediate liquidity buffers

Key Concerns:

• YoY declines in revenue (-9.1%), operating income (-18.6%), and net income (-24.3%)
• Negative operating leverage compressing margins
• OCF/NI at 0.78, pointing to weaker cash conversion in the period
• High inventory levels that require active management to support margins and OCF

Investment Implications

Key Takeaways:

• Margins compressed on lower volumes, with operating margin at ~10.0% and net margin 6.92%
• ROE of 4.74% constrained mainly by profitability rather than leverage or asset base
• Strong liquidity (current ratio 216%, quick ratio 129%) and conservative leverage (D/E 0.63x)
• Cash conversion was softer (OCF/NI 0.78) likely due to working capital build
• Limited disclosure on cash, capex, and dividends curtails visibility on FCF and capital returns

Metrics to Watch:

• Order intake/backlog and book-to-bill to gauge revenue recovery
• Inventory turnover and days inventory on hand to track working capital normalization
• Operating margin trajectory and gross margin mix effects
• OCF/NI and FCF once capex is disclosed
• Interest expense trend and coverage as financing conditions evolve
• Asset turnover improvements alongside demand stabilization

Relative Positioning: Within Japan’s precision instruments/industrial components peer set, Nagano Keiki exhibits solid balance sheet strength and mid-teens EBITDA margin but currently trails on growth and ROE due to volume-driven deleverage; upside depends on demand normalization and improved cash conversion.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis